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Adapting auto-enrolment to fix savings crisis

6 August 2015

A radical adaptation of the pensions auto-enrolment system in conjunction with prize based incentives would help address the problem of low savings rates in the UK and protect people from financial hardship, according to a new discussion paper released today by StepChange Debt Charity.

The proposals come after a YouGov poll commissioned by the charity revealed 21.8m British adults are not confident they are saving enough to cope with a rainy day. At the moment these people don’t see how they are going to be able to start saving either; 75% (16.3m) aren’t confident they will be able to start saving enough for a rainy day within the next year [1].

Previous research by the charity showed that accessible cash savings of £1,000 would protect 500,000 households from falling into problem debt and make a dent in the £8.3 billion social cost of problem debt. Yet StepChange’s analysis of the Wealth and Assets Survey revealed a worrying £5.3bn savings gap with more than 7 million households falling well short of this minimum £1,000 [2].

The charity argues that adapting the pensions auto enrolment system, one of seven key proposals in the charity’s new report, will create a vital safety net for non-savers.

Who’s not saving?

The charity’s research revealed that people on low-to-middle incomes, people in rented accommodation and people with young children are least likely to have £1,000 in precautionary savings. This group represents over 25% of the population [3].

Why aren’t people saving?

Aside from income, housing tenure and the presence of young children, the analysis shows that behavioural traits impact on an individual’s saving. A significant proportion of households (between 8% and 13%) tend to be less organised with their money or engage with behaviour that does not prioritise long term financial advantage [4].

Using auto-enrolment to help people to save

StepChange Debt Charity argues its auto enrolment savings scheme proposal, which could be established by creating an accessible savings ‘jar’ within a pension pot or diverting auto-enrolment contributions into a linked savings account, would help families overcome low income and behavioural traits as barriers to saving.

Mike O’Connor, Chief Executive of StepChange Debt Charity, said:

"Our research highlights a national savings crisis with far too many families living without a financial safety net and at real risk of problem debt. Adapting the existing approach to pension saving would ensure each adult is better able to cope with an unexpected bill and a loss of income without sinking into debt.

“We have a successful strategy in this country to boost retirement saving. We have successful strategies to encourage saving if you’re reasonably well-off, retired or saving for the deposit on a house. But we have a gap when it comes to encouraging hard working people on tight budgets to start saving.

Notes to editors:

1. Figures from YouGov Plc. Total sample size was 1,707 adults. Fieldwork was undertaken between July 12-13 2015. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+). Figures have been grossed up, using the ONS 2014 Mid Year estimates of adults in Great Britain: 49,501,761. Calculations have been undertaken by StepChange based on YouGov figures.

2. Figures based on Select Statistical Services analysis of the latest wave (2010-2012) of ONS Wealth and Assets Survey. The total number of private households over the survey period (July 2010-June 2012) is estimated to be 24,215,247.

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